Power to Which People?

Allen R. Sanderson*
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"Far too many of our public policies are one-sided or asymmetric in nature and are based on the assumption, in the face of very little evidence, that one allegedly poorly informed, weak party needs protection from a powerful, unscrupulous economic adversary."
Volunteering and charity are respected and encouraged in America. We respect and encourage people who accept less than their market wage, donate their time, or give away money or goods to others. We understand the logic of volunteering and understand that it can be a mix of altruistic behavior and self-interest.

For example, here in Chicago, I can volunteer to perform services for free as a docent for the Art Institute or the Lincoln Park Zoo. Why would I want to do that? Because I care about my community, I like art or animals, it is a way to mix socially, and also because it might look good on my résumé when I look for other subsequent professional opportunities.

High School and college students often take summer internships that pay very little or even nothing at all. Why would they do that? Because it could constitute a sound investment that will increase their human capital and the probability of landing a full-time job later, including with that very firm or organization. And it constitutes a low-cost way to learn about and sift through career options.

One can also serve as an unpaid (or poorly paid) volunteer on presidential or congressional campaigns—no politician in his or her right mind would deny someone the right to lick stamps or make quasi-telemarketing calls for free. Maybe one complementary aspect of or amendment to McCain-Feingold would have been to require that all campaign workers be paid at least the minimum wage; that would reduce the partisan clutter to an acceptable level.

For 30 years those with an inclination toward national service and concerns about contemporary urban problems have been able to join VISTA (Volunteers In Service To America). My family and I can volunteer—through the Adopt-A-Highway program—to keep a section of an Interstate highway or other roadway free of litter. I have coached—for free—youth sports teams and have tutored youngsters in mathematics. Paraphrasing Seinfeld, there is nothing wrong with that; giving of one's time and resources increases social capital and is to be praised and expanded wherever and whenever we can. (And there are instances—military service, donating blood, serving on a jury, being a Good Samaritan—where we hope that citizens in a democracy will consider the overall Public Good.)

But why, then, can't I—or you—work at McDonald's or the GAP or some other eatery or mall outlet for free—or below the minimum wage—even though being there will look good on a résumé, increase later earning potential, and get one's proverbial foot in the door? The bias against and disdain for for-profit corporations is strong among powerful political forces and anti-business special-interest groups. The same potential benefits that unpaid internships offer college students could be more valuable for inner city teens who are desperately in need of experience and a chance to advertise their potential.

In a free society shouldn't one be allowed to offer his or her services to a labor market for under some specified minimum or living wage, including $0.00 per hour? There are real advantages in acquiring on-the-job training, work experience, and developing personal habits like punctuality, motivation, dependability and interpersonal relations.

In terms of products, I can buy a futures' contract for cocoa, lumber, orange juice, euros or even “pollution.” This is both legal and encouraged. I am speculating (aka investing); I am accepting some risk in return for some expected—but certainly not guaranteed—gain.

I could also buy a rundown building, a painting, gold, AT&T stock, Florida real estate, an Elvis plate from the Franklin Mint, a baseball card, wine, or a rare coin or stamp. I can then resell any/all of these items for what the market will bear, which could be more—or less—than my original purchase price.

But why can't I buy a ticket to a Chicago Cubs game or a Shania Twain concert and turn around and sell it for more than I paid for it? I am allowed to give the ticket away or sell it for less than I paid for it, just not more. Yet the Tribune Company, the owner of the Cubs, is perfectly free to sell that franchise—and its Wrigley Field seats—for whatever the market will bear. But if I try to resell a Cubs ticket for a profit, the police can arrest me and the Cubs can revoke my season-ticket privileges.

The 'TKTS' booth in Times Square, and similar outlets in other cities, will sell excess day-of-performance tickets at about 50 percent of the face price. Why not allow a corresponding booth across the street that sells these same opportunities at twice face? Presumably being able to sell a ticket at a loss benefits a producer or someone who's holding a ticket he/she can't use or no longer wants. Wouldn't being able to buy a ticket at the last minute for above its face value have comparable benefits? (We extol the benefits priceline.com, expedia.com and other web-based addresses bring to consumers shopping for last-minute deals on hotels or airfares when there are suddenly empty beds or seats, but let a firm raise the price of lumber or a prescription drug when there is an unanticipated shortage and we cry foul.)

I can donate my entire body to medical science, but neither I nor my surviving kin can be rewarded financially for it. While still living I can give my kidney to someone else but not sell it. (Presumably the same holds with regard to my providing sexual favors, though admittedly the market price would be pretty close to zero anyway.) A positive price could bring some significant positive benefits—a larger supply and thus a reduction in shortages.

Far too many of our public policies are one-sided or asymmetric in nature and are based on the assumption, in the face of very little evidence, that one allegedly poorly informed, weak party needs protection from a powerful, unscrupulous economic adversary; or they are the result of one group, such as a renter or union, using the political system for its own gains without regard to overall efficiency or equity.

Activists, many politicians, the media and perhaps even the general public feel that in most business negotiations or transactions a for-profit firm wields considerable power over its customers and employees. Harboring this pervasive notion, which I would assert is generally misguided and devoid of empirical content, leads us to enact legislation to protect the supposed weaker party. However, these laws and public policy restrictions often harm the very people they were designed to help.

When I want to buy an automobile—cheap, or at least for not much more than it cost the manufacturer to produce it—I'm not really competing against a powerful polyester-clad car dealer, but rather against my neighbors and fellow consumers who might well be willing to pay more for that vehicle. And the dealer knows full well that I have alternative outlets where I can purchase a similar car. Thus his real competition is not me but rather other dealers who'd be willing to sell to me for less. As long as we can keep sellers from colluding, which we do via antitrust laws and bringing price-fixing suits, no one is taking advantage of anyone.

Under the presumption that building owners are long on greed and short on compassion and ethics, some cities foolishly enact rent controls without giving a thought to the economic circumstances of both parties in the transaction or to the longer term consequences with regard to the supply of housing. It is far from obvious in many areas of San Francisco or New York that landlords are better heeled than their sheltered tenants.

The counterpart in labor markets is that we have instituted minimum wage legislation (or in its current clothing, living-wage ordinances) and periodically hiked the hourly rate to ensure that bosses aren't taking advantage of their workers. But on the labor side of things, virtually all potential and current employees have some alternatives—very few firms employ more than a small fraction of the available labor pool in most any large city or small community. There are other workers I could hire instead of you, and other employers for whom you could work instead of me. And requiring that I cannot be hired below a given wage, one that could exceed my value to this or any other employer, may not be in my best short-term or long-term interest.

The ubiquitous blanket statements in presidential debates and the popular press that females in the workforce only earn 76 cents for every dollar a male takes home is another erroneous assertion, as is the implicit assumption that the sole cause of this inequality is employer discrimination. Once one adjusts for differences in education (including where one earned a bachelor's degree and in what field), age (men in the labor force are on average several years older than women, and thus one should correct or adjust for experience), marital status (married couples make joint decisions with regard to market and non-market distributions of their time and energies), and personal preferences (women tend to specialize less and have more varied goals, which is to their credit, but the tradeoff is lower pay and slower career advancement), all but a few pennies between the sexes disappear.

If we are concerned, as I hope we are, about fairness, justice and those on the very lowest rungs on our society's economic ladder, there are far better ways to redistribute resources and tilt our playing fields toward the disadvantaged than by pushing legislation that costs us in efficiency without making any dents in the underlying equity problem—and through unintended consequences can actually harm those most in need of assistance. The fact that proponents of the usual set of policy prescriptions—minimum-wage laws, living-wage ordinances, rent control, and so forth—remain adamantly opposed to any means-testing for recipients suggests that their agenda is much more finding ways to punish corporations and tilt playing fields in their selfish favor rather than to help the poor. In addition, these laws and public policy restrictions can have deleterious effects on our economy as a whole as well as foster and re-enforce economic nonsense. There are far better ways to address serious equity concerns in our society than are usually touted on bumper stickers and protest posters.


* Allen R. Sanderson teaches economics at the University of Chicago, including a two-quarter lecture sequence in introductory economics and does research on the business of sports.

For more articles by Allen R. Sanderson, see the Archive.
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